Question

Francisco Inc. acquired 100 percent of the voting shares of Beltran Company on January 1, 2017. In exchange, Francisco paid $794,250 in cash and issued 112,000 shares of its own $1 par value common stock. On this date, Francisco’s stock had a fair value of $12 per share. The combination is a statutory merger with Beltran subsequently dissolved as a legal corporation. Beltran’s assets and liabilities are assigned to a new reporting unit.

The following reports the fair values for the Beltran reporting unit for January 1, 2017, and December 31, 2018, along with their respective book values on December 31, 2018.

Beltran Reporting Unit	Fair Values 1/1/17			Fair Values 12/31/18			Book Values 12/31/18
Cash	$	120,500		$	87,500		$	87,500
Receivables		286,250			340,500			340,500
Inventory		271,250			316,000			306,100
Patents		686,500			790,000			658,500
Customer relationships		586,250			564,000			528,500
Equipment (net)		312,000			242,000			233,700
Goodwill		?			?			534,000
Accounts payable		(139,500	)		(203,000	)		(203,000	)
Long-term liabilities		(519,000	)		(428,000	)		(428,000	)

a. Prepare Francisco’s journal entry to record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017.

b. On December 31, 2018, Francisco opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire Beltran reporting unit is $1,823,000. What amount of goodwill impairment, if any, should Francisco recognize on its 2018 income statement?

• Record the assets acquired and the liabilities assumed in the Beltran merger on January 1, 2017.

Note: Enter debits before credits.

	Date General Journal Debit Credit January 01, 2017

On December 31, 2018, Francisco opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire Beltran reporting unit is $1,823,000. What amount of goodwill impairment, if any, should Francisco recognize on its 2018 income statement?

	Goodwill impairment loss

Answer 1

(a).

Accounts Titles & Explanation	Debit	Credit
Cash	$120500
Receivables	$286250
Inventory	$271250
Patents	$686500
Customer Relationships	$586250
Equipment	$312000
Goodwill (Balancing figure)	$534000
Accounts Payable		$139500
Long-term Liabilities		$519000
Cash		$794250
Common Stock (112000 * $1)		$112000
Additional paid in capital (112000 * $11)		$1232000
(For recording assets and liabilities)

Working note;

Goodwill is calculated as follow;

Total amount paid ($794250 + $112000 + $1232000) = $2138250

Value of net assets acquired ($120500 + $286250 + $271250 + $686500 + $586250 + $312000 - $139500 - $519000) = $1604250

Thus, amount of goodwill ($2138250 – $1604250) = $534000

(b).

Total fair value of the entire Beltran reporting unit is	$1823000
Book value of reporting unit’s net assets	$2057800
So carrying value is greater than fair value hence here is impairment of goodwill
Fair value of the reporting unit as whole	$1823000
Less: Fair value of the entire Beltran reporting unit (Excluding goodwill)	($1709000)
Impaired fair value of goodwill	$114000
Book value of goodwill	$534000
Goodwill impairment loss ($534000 - $114000)	$420000